Can Tamil Nadu Realistically Achieve Its $1 Trillion Goal By 2030?

The Tamil Nadu Global Investors Meet (TNGIM) 2024 faced unexpected rains on its opening day, causing delays, yet it also witnessed a deluge of investments. Companies, including major players like Tata Electronics, Pegatron, Hyundai, TVS Group, Mitsubishi Electric, JSW Renewables, First Solar, VinFast and Tata Electronics, collectively signed investment pacts surpassing Rs 6,64,180 crore. 

Substantial commitments included Hyundai's Rs 6,180 crore, JSW Renewables' Rs 12,000 crore, and VinFast's USD 2 billion. Amidst these significant investments, Tamil Nadu Chief Minister MK Stalin unveiled the state's ambitious vision of attaining a USD 1 trillion economy by 2030, aligning with similar aspirations set by Karnataka and UP earlier.

"With the aim that Tamil Nadu should play an important role in shaping India's economic growth, I have set an ambitious target of transforming Tamil Nadu's economy into a USD 1 trillion economy by 2030. To achieve this, we are pursuing a twin-pronged approach of attracting both capital and employment-intensive investments,” the Chief Minister said during the event.

Source: TNGIM 2024

Clearly, the envisioned growth is formidable, given Tamil Nadu's 8.19 per cent GSDP expansion in 2022-23 at constant prices. Pre-Covid-19, the real economic growth fluctuated since 2011-12, averaging 5.80 per cent. 

Speaking at TNGIM, Union Minister Piyush Goyal stressed on the state's need for an extraordinary 18 per cent growth over the next 7-8 years to achieve the goal. But in response, Tamil Nadu's Chief Minister, affirming the USD 1 trillion commitment, declared, "We offer what we promise," underscoring the state's determination to be a pioneering force among others.

But navigating economics is rarely as straightforward as merely attracting investments. However, insights from Former RBI Governor Raghuram Rajan and ex-Chief Economic Adviser Arvind Subramanian, both members of the Economic Advisory Council to the Chief Minister of Tamil Nadu, suggested that if any state in India could accomplish this feat, it would be Tamil Nadu. 

While this statement made headlines in all major newspapers the following day, it's crucial to note that Subramanian tempered optimism by highlighting a historical perspective. He pointed out that "in the history of humanity, no country at any point in time has achieved 18 per cent growth ever." He noted that China, known for remarkable growth, achieved 10-11 per cent over 40 years, which means making the cut for the proposed 18 per cent growth target is undeniably ambitious.

During a separate round table on Monday, BW Businessworld pressed Subramanian on this topic further. “As I said (yesterday), no country in the history of humanity has done this. But I think, one thing you kind of learn from Mr. Modi is that setting these goals is almost like a pre-commitment to the kind of constant engagement and investment in achieving these goals. This is like a 24/7 job rather than. So, if that ambition actually means that ongoing commitment, great. So even if you don't meet it, so what? At least you're trying all the time,” he responded.

“But you know, the fact that it's kind of maybe almost unrealistic is not a fair or constructive critique of the target, because if it were just an ambition without any commensurate effort put into it by the government then it would be meaningless,” he added. 

However, Subramanian did acknowledge that he is not personally backing the number and rather just supporting the vision set out. He emphasised that this is possibly not the right time to critique the vision.Image: BCG's suggestions for Tamil Nadu to reach $1 trillion goal | BCGFocus On Workforce For Growth

In a panel discussion at TNGIM, former RBI Governor Raghuram Rajan highlighted Tamil Nadu's potential in manufacturing, emphasising the state's advantage in higher value-added processes. He highlighted the abundance of skilled engineers and a Gross enrolment ratio (GER) ratio surpassing that of Europe. Rajan urged an ambitious approach, encouraging the state to focus on specialised and advanced manufacturing. He proposed, "Don't ignore the fact that we can do a lot of low-skill manufacturing if that comes to our shores, but if you want to be ambitious, focus on the higher end."

“We have the capability of moving higher than that low skilled manufacturing,” he added.

Rajan dismissed the notion that starting at the low end is a prerequisite for high-end success, pointing to companies like Apple that have excelled in higher-end markets without engaging in product manufacturing since 2004.

Image: BCG's suggestions for Human Capital Development in Tamil Nadu | BCG

The ex-RBI governor emphasised the potential for job generation at various levels, including assembly jobs, utilising the existing workforce and leveraging Tamil Nadu's engineering talent and the presence of Global Capability Centres (GCCs) for higher-end opportunities. The former RBI governor also stressed the importance of diversifying economic opportunities, citing examples such as the tourism sector and innovation in manufacturing, as seen in the case of AgniKul, a company in Chennai using 3D printing for rocket manufacturing.

"We have the capability of moving higher than that low skilled manufacturing."  - Former RBI Governor Raghuram Rajan

But ex-CEA Subramanian contented the notion of focusing on high-end manufacturing citing the fact that the mass jobs that will help the state and the country will come from low end manufacturing. 

“In India's case, our formal manufacturing employment, it peaked at about 6-7 per cent and then declined, and for the last 10 years it has been declining. So, we missed that bus because of all kinds of policies. But what has surprised me now is that the China has created an opportunity to partially reverse it,” Subramanian said.

“China has 40 per cent of global market share in exports. We should have had 15-20 per cent at least. Currently, we are at 4 per cent but we must work to get to at least 10 per cent,” he added.

Subramanian highlighted concerns over India's current 4 per cent share in global exports, deeming it a substantial underperformance. He advocated for an increase to 15-20 per cent, asserting that even a modest rise to 10-12 per cent would bring significant economic gains, possibly amounting for another USD 1 trillion economy – exactly what Tamil Nadu is aiming for.

More Inbound Investment And Debt Reduction

According to BCG’s report presented at TNGIM, Tamil Nadu will need to attract a total of USD 4 trillion in strategic investments along with other things to help the state achieve its USD 1 trillion target by 2030. Currently, the state stands at fourth or fifth in terms of Foreign Direct Investment (FDI) in India.Image: BCG says Tamil Nadu needs to attract $4 trillion in investments to achieve its $1 trillion economy goal by 2030 | BCGDuring the event, Raghuram Rajan advocated for a decentralised fiscal approach in India, underscoring the significance of devolving more finances to states. He contended that India's sheer size necessitates a more localised governance structure and encourages a continued devolution of funds and responsibilities to states over time. 

Subramanian agreed with Raghuram’s comment for a reevaluation and correction in fiscal arrangements from the Centre to States, suggesting that southern states, including Tamil Nadu, should reclaim a slightly larger portion of resources from the central government. He felt there was a need for realignment to address evolving dynamics in India's fiscal and political landscape.

Meanwhile, addressing Tamil Nadu's role, Rajan urged the state to position itself as a preferred destination for FDI, particularly in the context of the "China plus one" strategy. He said the need for Tamil Nadu to leverage regional trade agreements, negotiate favourable terms and create an environment conducive to both domestic and foreign investments, including in areas such as green power generation. Furthermore, Rajan underscored the importance of maintaining a stable policy framework to instill confidence and attract substantial investments.

Further, Rajan highlighted the imperative for states like Tamil Nadu to assert themselves in the global investment landscape. "Tamil Nadu has to stand up and say, look, we are the place that you should be in and attract that kind of investment going forward," he said.

In the discussion between the two renowned economists, another focal point was Tamil Nadu's debt. Recognising the need for funds to realise long-term projects, emphasis was placed on cultivating a strong balance sheet for the state. It was noted that the state’s debt-based Achilles heel was the power sector, which is responsible for about a third of Tamil Nadu's debt.

“I think the bad news is that the (power sector) debt is very high. Distribution companies (Discoms) losses are very high, unsustainably high,” stressed Subramanian. 

Despite this, Subramanian highlighted that the Tamil Nadu government's commitment to addressing these issues were satisfactory. He said the government has implemented progressive policies, such as raising property taxes and indexing tariffs to inflation. But he stressed that the power sector problem is not only related to tariffs but also institutional, as Tamil Nadu is unique in having generation and distribution under the same setup. 

He mentioned contemplated reforms, including separating generation and distribution, involving the private sector, and recognised the importance of institutional reform for attracting renewable investments, particularly in offshore wind, which he deemed a potential game-changer for Tamil Nadu.